Mortgage rate hits 4-year high
Signs of inflation drive 30-year loan to highest since late May 2002 in another blow to the housing market.

NEW YORK ( - Mortgage rates jumped to a four-year high this week as worries about inflation led investors to believe that more Fed rate hikes are on the way, Freddie Mac said Thursday.

The average rate on the 30-year fixed-rate mortgage jumped to 6.71 percent for the week ending June 22, up from 6.63 percent the week before.

That's the highest level since late May 2002 when the 30-year loan rate stood at 6.76 percent, according to Freddie Mac's mortgage survey. A year ago, the 30-year mortgage rate averaged 5.63 percent.

Rising rates have contributed to the slowdown in housing market after a decade-long boom that sent sales and prices to record levels.

"Financial markets believe that the current rate of inflation is above the Fed's comfort zone, which will lead to more rate hikes in the near future," Freddie Mac chief economist Frank Nothaft said.

Investors' expectations that the Federal Reserve will raise short-term rates later this month and possibly further later this year "caused mortgage rates to jump higher this week," Nothaft said in a statement.

Further Fed rate hikes could push mortgage rates higher still, though home loan rates are more closely tied to the Treasury bond market than to the Fed's short-term rate target.

In its survey, the mortgage finance firm said the average rate on 15-year fixed-rate mortgages rose to 6.36 percent from 6.25 percent the previous week. A year ago, that loan averaged 5.16 percent.

Five-year adjustable-rate mortgages averaged 6.32 percent, up 0.09 percentage points from last week, Freddie Mac said. The five-year ARM averaged 5.05 percent last year.

The average one-year adjustable-rate mortgage (ARM) jumped to 5.75 percent from 5.66 percent. At this time last year, the one-year loan averaged 4.23 percent.

For homeowners using adjustable rate mortgages, a rise in interest rates can mean ballooning payments.

The Mortgage Bankers Association estimates that some $330 billion worth of ARMs will adjust in 2006 and $1 trillion worth will reset by the end of 2007.

With a $200,000 loan adjusting upward from 4 percent to 6 percent, the monthly bill would increase to about $1,200, from $955.


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